Wednesday, 9 January 2013

France in free fall: "A shocking deterioration in competitiveness"

Karl Lagerfeld - not afraid of speaking out.

Karl Lagerfeld, the creative director of the French fashion house Chanel recently grabbed headlines with this statement:

"Outside of fashion, jewellery, perfume and wine, France isn't competitive," Lagerfeld said. "The rest of our products don't sell. Who buys French cars? I don't."

France's socialist president Francois Hollande may not have liked the comment, but a look at the French economy shows that Lagerfeld's description is most accurate:

A deeper look shows that France is mired in no less than an economic crisis. The eurozone's second-largest economy (2012 GDP: 2 trillion euros) is suffering more than any other member from a shocking deterioration in competitiveness. Put simply, France's products -- its cars, steel, clothing, electronics -- cost far too much to produce compared with competing goods both from Asia and its European neighbors, including not just Germany but even Spain and Italy. That's causing a sharp and accelerating fall in its exports, and a significant decline in manufacturing and the services that support it.

The virtual implosion of French industry is overlooked by analysts and pundits who claim that the eurozone had dodged disaster and entered a new, durable period of stability. In fact, it's France -- not Greece or Spain -- that now poses the greatest threat to the euro's survival. France epitomizes the real problem with the single currency: The inability of nations with high and rising production costs to adjust their currencies so that their products remain competitive in world markets.
So far, the worries over the euro have centered on dangerously rising debt and deficits. But those fiscal problems are primarily the result of a loss of competitiveness. When products cost too much to make, the economy stalls or actually declines, so that even modest increases in government spending swamp nations with big budget shortfalls and excessive borrowings. In this no-or-negative growth scenario, the picture is usually the same: The private economy shrinks while government keeps expanding.
That's already happened in Italy, Spain and other troubled eurozone members. The difference is that those nations are adopting structural reforms to restore their competitiveness. France is doing nothing of the kind. Hence, its yawning competitiveness gap will soon create a fiscal crisis. It's absolutely astonishing that an economy so large, and so widely respected, can be unraveling so quickly.
Read the entire Fortune article here
Francois Hollande enjoys grandstanding in his role as president, with all the traditional trappings of a royal head of state, but - as we have said before - he is in reality nothing but an emperor without clothes. 
It will not take long before the citizens of the once mighty and powerful La France will wake up and ask the question, why on earth did we elect this incompetent party apparatchik as our president?

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